The U.S.-China Trade Talks Have Already Changed the World

The trade talks may end. But the trade war will never die.

 

Matt Peterson, The Atlantic

May 7, 2019

 

Robert Lighthizer, the U.S. trade representative, is no one’s idea of an optimist. He and Treasury Secretary Steven Mnuchin have been leading trade talks with China for the past several months, and Lighthizer has been careful to point out there’s no guarantee of success. “If there’s a great deal to be gotten, we’ll get it —if not, we’ll find another plan,” Lighthizer told NPR recently. That’s a lot of ifs for the most important economic relationship in the world.

 

Pessimism won the day on Monday, when Lighthizer and Mnuchin announced that the U.S. would execute President Donald Trump’s recent threat to raise tariffs on China once again. The punitive action in the midst of a negotiation was a departure from Trump’s generally optimistic tone about the talks, but it was a return to form for Lighthizer, an experienced negotiator with a reputation for brinkmanship. China, he believes, poses a grave danger to Americans’ way of life. Talks with China have been something of a moon shot for Lighthizer; an agreement that closes off vectors of illegitimate influence is difficult but, if a deal is reached, extremely valuable. And so despite the additional tariffs, the U.S. is not walking away from the talks yet, the negotiators said Monday. Chinese negotiators will arrive Thursday for more talks. But if the negotiations do fall through, Washington has already taken steps to ensure that China doesn’t get the upper hand.

 

The China talks have a few main goals, according to Lighthizer’s public statements and media reports. They aim to reverse the decades-long buildup of global supply chains in China, which has made the country the destination of choice for businesses like Apple that manufacture and assemble high-tech products. The U.S. negotiators also want to put an end to a Chinese campaign to steal American know-how. They want to limit the support the Chinese government gives to the local private sector. And, crucial to Trump, the talks seek to engage China to buy massive amounts of U.S. goods, including potentially soybeans and semiconductors. To get China to change its ways, the U.S. has imposed a series of escalating tariffs that now cover $250 billion worth of Chinese imports, out of roughly $550 billion in annual imports from China. Most of those tariffs have been set at 10 percent; unless a last-minute agreement preempts the new policy, those rates will all rise to 25 percent on Friday. (Trump has said that China bears the cost of the tariffs. Studies have found that in practice, American consumers bear the brunt.) The president can unilaterally impose tariffs under U.S. trade law, but doing so may violate America’s commitments at the World Trade Organization, where China has lodged a complaint.)

 

The trouble with the administration’s plans is that China doesn’t really want to do most of the things America wants it to, other than buying U.S. goods. (China was buying lots of American soybeans until Trump imposed his tariffs; Beijing switched to Brazil and other suppliers as punishment.) The Chinese Communist Party stays in power by giving its people an ever-growing promise of a better life. Changes to the country’s economic model are no small thing, especially when they’re demanded by outsiders. That means the United States needs to radically change the cost-benefit analysis of the party, and even billions of dollars’ worth of tariffs may not be enough to make that happen, although they do seem to be slowing Chinese economic growth.

 

Just how far China will go is a mystery that won’t be resolved unless a deal is struck. A Chinese delegation led by Vice Premier Liu He is still planning to travel to Washington later this week, though it has limited its schedule. The immediate sticking point, according to The New York Times, came after the U.S. team insisted that the substance of the deal be thoroughly enacted in Chinese law—no mean feat in an opaque, autocratic system. The durability of Chinese agreements is a long-running point of contention. “U.S.-China trade agreements have often had the staying power of the dew on a summer’s rose,” wrote Mark Cohen, a former Patent Office attaché at the U.S. embassy in Beijing.

 

The difficulty of this task appears to be what drew Lighthizer into the administration in the first place. He was headed for a comfortable semiretirement, Dan DiMicco, a former steel CEO who put Lighthizer’s name forward during the transition, told me last year. Lighthizer has long seen China’s economic overtures to be a kind of Trojan horse. “Its leaders view economics the same way they view defense, foreign policy or human rights. It is a means of expanding the power of the state and maintaining control of its population,” Lighthizer wrote in a 1999 essay inveighing against President Bill Clinton’s plan to bring China into the WTO, through which it could trade with the West on more favorable terms. “We have all the leverage in the world if only we are willing to use it,” he wrote a few years later. Using that leverage against China became Lighthizer’s personal and professional mission. Now that the China talks have hit a low point, the question to ask is whether a man who spent decades preparing for this moment is unprepared for it.

 

A crucial moment for the talks came in April, when Mnuchin said that the U.S. and China had “pretty much agreed” to create a mechanism to enforce the deal. That announcement aimed to resolve a lingering problem. The U.S. wants the deal to effect real changes. But why would China ever agree to let the United States punish it unilaterally? The answer, as Mnuchin explained: Both sides would agree to let the other police the deal. The trouble with that plan is that it cuts against everything Lighthizer and his hawkish allies believe about America’s role in the global economy. In their telling, China has been plundering the American economy since at least its entry into the WTO, in 2001. Letting China monitor the U.S. would be something of an insult to the American workers the negotiators say they’re defending. “Nothing known about the Trump administration’s enforcement strategy should give anyone confidence that satisfactory enforcement is possible,” wrote the economist Alan Tonelson in April. “Decades of experience should by now have clearly taught the lesson that, at least under the present Chinese regime, mutually beneficial economic ties were never possible.”

 

Lighthizer may well have persuaded Trump to act out a bluff as a way of forcing concessions. But even if he isn’t, and the talks really are in trouble, the U.S. has already taken steps to limit its perceived vulnerabilities to China. It has sent a loud message that companies with Chinese supply chains need to consider their business strategies...

 

more, including links

https://www.theatlantic.com/politics/archive/2019/05/trump-china-trade-could-end-trade-war-wont/588880/